What is a business merger advantages and transaction challenges

Business merger

Business merger is a voluntary union between two or more organizations that generate a third new company. This type of merger usually happens between companies in the same sector or similar sectors, in addition, it requires full legal support.

But for the merger to be successful, it is important that both companies carry out a detailed market study , mapping the risks and advantages that the merger can bring.

Therefore, the process must be complex and meticulous , because all the assets are added and organizations cease to exist individually to form a larger and more powerful company.

However, despite the bureaucracy, the results can be excellent , bringing expansion to the market and significantly increasing the organization’s customer base.

Advantages of merging companies

No wonder the number of mergers has grown over the years. The transaction can bring several commercial advantages to the new company. Below, we list the main ones.

1-Market expansion and diversification

The merger of companies allows for a greater coverage , both of target audiences and market niches. When the union takes place, the new company manages to open horizons, break limitations and gain a greater organic reach of the public.

2-revenue increase

As the merger provides more market capacity and a larger audience, consequently, it brings more business opportunities. Thus, there is an increase in the conversion rate , which generates more revenue for the business to maintain its growth.

Furthermore, mergers help to decrease market saturation , minimizing the number of competitors and providing market dominance.

3-Decrease in expenses

With the unification of people, processes and spaces, it is also possible to reduce operating costs . In addition, the new management is able to identify errors and unnecessary expenses , enabling a more sustainable and leaner administration.

4-Risk reduction

The merger of companies is not only related to the union of assets, but also of market knowledge . This know-how contributes to a significant reduction in risks and brings more expertise so that the organization is prepared in times of fluctuations and adversity.

5-Culture diversification

Finally, it is worth noting that an organization is made by people . In this way, the merger unites several teams with a single purpose, which enables a rich diversity of organizational culture and enables a productive and inspiring environment.

What are the transaction challenges while a business merger ?

The merger challenges go beyond the bureaucratic process that requires a lot of caution and care. After the consolidation of the new company, other difficulties may appear. Get to know some of them.

1-Process unification

Each company uses different processes and technologies in each sector of its management. Therefore, unifying these processes and crossing all available data can be a complex step.

So, to resolve it is important a lot of planning and data collection. In this way, management avoids the lack of productivity and costs generated by repeated or unnecessary tools.

2-monitoring of results

The metrics and reports used to monitor the results of each company can also be different and vary, including the form of collection and calculation. Because of this, there are chances of there being information conflicts after the merger .

The tip to improve the experience is to talk to the people responsible for defining the criteria, in both organizations, trying to align and unite this data.

3-team connection

Another factor that can generate conflicts in the new company is the team connection. Joining teams with different people, managements, processes and cultures is extremely challenging and can even impact the organizational climate .

Therefore, it is necessary to carry out extensive planning and create a unique onboarding for the new company.

4-brand strength

Despite being a good growth opportunity in the market, the merger can also lead to a loss of brand strength. This is because customers already had an identification and recognition with the old companies and tend to distance themselves when a new identity emerges.

To reverse the situation, it is important to invest in branding , communicate the union to the target audience and quickly position yourself in the market.

What types of company mergers?

The fusion process can be divided into five main types and each of them has its own characteristics:

  • horizontal merger: it is the union of companies that operate in the same sector, to increase their market share;
  • vertical merger: unites companies that belong to the same sector, but are not in the same production chain, that is, businesses that complement each other to seek new solutions together;
  • conglomerate: is the merger of companies that operate in completely different sectors, to increase business diversification;
  • market extension merger: unites companies that offer the same product or service, but in different markets, seeking to reach a larger customer base;
  • product extension fusion: it is the union of companies that work with similar products or services, in order to increase offers and conquer more market shares.

What are the tips to make a successful merger?

After weighing the advantages and challenges of the merger and defining which model will be carried out, the process must begin. But how to do this? Now, we’ve listed some tips that can make this transformation go smoother.

1-make clear agreements

Before starting the process, it is necessary to carry out a well-structured plan and make the negotiation as clear as possible.

Therefore, everything must be defined in advance : the contribution of each company, how the process will be carried out, how long the merger will take and what are the expected results. Defining the details clearly makes the change simpler, faster and avoids unforeseen issues and objections.

2-Communicate all involved

The merger process is a bureaucratic change that can bring uncertainty and fear to everyone involved . To avoid this situation, it is essential to have clear and direct communication with employees and suppliers.

Also, informing people who will be impacted by the change is a way to provide security and support and keep your team engaged .

3-define responsibilities

A good leader is essential for the merger process to be well structured. So, after communicating the change, you need to define responsibilities and choose the right people for each of the tasks .

So, divide the company into smaller teams and look for leaders who are aligned with the new organizational culture. In this way, it will be possible to carry out a more efficient management and ensure greater productivity .

4-Start by integrating people

The first element the company needs to focus on after the merger is the integration of people. Here, it is necessary to explain the new culture, present the benefits of change and encourage a collaborative and motivated environment.

In this way, with employees more adherent and aligned with the new company’s culture, it will be easier to integrate processes and use them.

5-Take your time

The merger of companies is a long process that needs to be carried out with caution so that it can bring beneficial results. Therefore, it is not advisable to rush transformations or go too thirsty for the pot.

Therefore, try to carry out changes and integrations in a well-structured way and respecting each step of the process. 

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